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Wednesday, October 5, 2011

UPDATE: $100 Million Incentives: US 25, EU 5

Crowdsourcing works! In my last post on $100+ million incentive packages, I asked for your help in identifying any projects I had missed either in the US or European Union. Readers came up with several suggestions, which led to me discovering even more mega-incentives. I also checked the Good Jobs First blog Dirt Diggers Digest, where I found four projects listed, only one of which had been in my original 13 post-early-2008 packages. Then I went to the accumulated results of Google Alerts, where I found even more. In all, I found a total of 12 more projects in the US, bringing the score to US 25, EU 5. I have identified one possible additional case in the EU, but have yet to confirm it.

Here is my original list of $100 million incentives from September 29:

Company          State           Minimum nominal incentive package

AREVA             ID              $276.6 million present value
Nucor                LA             $373 million
Hemlock            MI             $358.4 million
Spirit Aero         NC            $250.9 million
Cerner/OnGoal  KS             $230 million
Hemlock            TN            $200 million
Electrolux          TN             $188.3 million present value
Ford                  KY            $180 million
Boeing              SC              $900 million
Apple                NC            $320.7 million
Xtreme             MI              $100 million
Schott               NM            $130 million
Panasonic         NJ              $102 million

Here are the additions:

LG Chem                  MI              $276 million (thanks to Dean Whittaker for this and the next one)
Johnson Controls       MI              $467.5 million
Motorola                  IL                $113.7 million (thanks to Dirt Diggers Digest for this and the next two)
American Greetings  OH              $104.5 million
Diebold                   OH                 $96 million (DDD expects this to top $100 million when all is tallied)
Yahoo                     NY               $200 million (David Cay Johnston has reported on this and the next one)
Verizon                   NY               $614 million
Xanadu                   NJ                 $200 million
Gaylord Entertain.   CO                $300 million
A123 Systems        MI                 $100 million
Dow Kokam          MI                 $100 million
fortu PowerCell      MI                 $100 million

We now have five times as many $100+ million packages in the US than the EU in the last three years, seven of which exceed the largest package in the EU, at least in nominal value. This continues to underscore my contention that the EU state aid rules successfully reduce the size of incentives there and we need to adapt their rules to our political institutions.

I have heard rumors that there may still be mega-packages still to uncover. Let me know if you hear about them!

Sunday, October 2, 2011

Job piracy in Canada, Australia, and the United States

As I mentioned in August, my article "Regulating Investment Attraction: Canada's Code of Conduct in Comparative Perspective," has just appeared in the September issue of the journal Canadian Public Policy.

Job piracy (using subsidies to induce the relocation of an existing facility) is a big problem in the United States. New York City and Kansas City have been subject to repeated raids by neighboring states, and a Good Jobs First study this summer documented extensive job piracy in the Cincinnati and Cleveland metropolitan areas. Two voluntary anti-poaching agreements among groups of states were complete failures.

In the early to mid-1990s, Canada was seeing large-scale job piracy as well. Crown Life Insurance moved 1200 jobs from Toronto to Regina, Saskatchewan, in 1991, receiving a C$250 million loan guarantee to do so. New Brunswick was handing out millions of dollars to call centers to relocate there, including C$11 million to get United Parcel Service to consolidate 870 jobs from three other provinces in Canada. With this background, British Columbia insisted that a ban on job piracy be placed in the 1994 Agreement on Internal Trade signed by the Canadian federal government, all 10 provinces, and the Yukon and Northwest Territories. Though there were other provisions in the Code of Conduct on Incentives, the piracy ban was the only one that was legally binding. But it turned out to be not binding enough.

The United Parcel Service subsidy was subject to a complaint by British Columbia against New Brunswick in 1995. But weak dispute resolution rules in the larger Agreement meant there was no true enforcement mechanism. New Brunswick suffered no consequences, although it eventually got out of the poaching game when Premier Frank McKenna retired. However, since 1995, there have been at least eight other instances where various provinces (Nova Scotia, Prince Edward Island, Quebec, and Ontario) all gave subsidies to companies to move existing operations. One of them, Clarke, Inc., has been featured for years on the website of Nova Scotia Business, Inc., even though it is a prima facie violation of the Code of Conduct. But without a complaint from Ontario, nothing can happen -- and Ontario tried to raid Nova Scotia unsuccessfully to obtain the headquarters of grocery chain Sobeys.

The Code of Conduct does not appear to have had much success. The best that can be said about it is that the relocations subsidized were much smaller than those of the 1990s. Clarke, at 95 jobs, was the largest; the others were significantly smaller than that. In the meantime, the Agreement on Internal Trade has strengthened its dispute resolution process to make violators subject to fines up to C$5 million. It seems possible that a large-scale subsidized relocation would provoke a complaint under the Code.

An interesting contrast is Australia, which has a voluntary anti-piracy agreement that includes five of the country's six states (Queensland is the non-participant). Besides banning job piracy, the Interstate Investment Cooperation Agreement also encourages states to consult with each other when a company tries to play them off against each other. Whereas the National Governors Association says U.S. states have the right to do this, in Australia the states really do consult with each other to reduce what I describe as an information asymmetry in bargaining between governments and companies. Even though there is no enforcement mechanism at all, there have only been a couple of violations since the Agreement was first adopted in 2003. The reason for its relative success seems to be that the five states' politicians genuinely believe that job piracy is bad policy, a view that has been promoted by a federal government research body, the Productivity Commission, for at least 15 years.

The lesson for the United States is that we should try to ban job piracy because it obviously has no benefit for the country as a whole. In the U.S., of course, we have a stronger dispute resolution process than Canada's Code of Conduct does: If Congress passed a law against interstate job piracy, it could be enforced in federal court. The problem is that too many state politicians don't agree that poaching is a bad policy; they need to be educated or replaced.